If you’re of a certain age, asking about someone’s salary would be considered taboo – or even offensive. With a different attitude toward privacy in general, millennials, though, are far more open to compensation discussions than previous generations. And, according to university research, keeping pay under wraps can actually hinder employee performance.
Is it time for you to seriously consider pay transparency in your organization? If secrecy tends to breed suspicion, then maybe the opposite’s true: Openness or transparency can breed trust, especially for younger generations. Even when it comes to topics previously considered too delicate for polite conversation such as compensation.
Embracing pay transparency
In fact, a leading national grocery chain has embraced pay transparency for the last 30 years. Since 1986, salary data for everyone in the company, including the CEO, has been available to its workforce. This transparency engenders a level of empowerment among employees, managers and executives. All levels are displayed for everyone to see. Openness also mitigates the water cooler gossip about who’s paid more than another, which can lead to a toxic work environment.
Although disclosing salary data can result in questions about pay variations and demands for the reasoning behind them, it can also embolden your top performers to work even harder to sustain their elevated status. And for those who are not giving it their all? Such information could inspire them to reach higher, boosting their performance.
Justify pay differentials
When creating pay transparency in the workplace, you need to be sure you can justify pay differentials and your performance management process. Be prepared to answer inevitable questions such as: “Why are some in the same job making more than their colleagues?” Is it performance-based, years’ experience, company tenure?
If you’re able to back up your compensation decisions with reputable data, employees will be more likely to understand why differentials exist — and what they need to do to succeed. Using data to make decisions also helps reduce pay favoritism and other non-job-related influences on pay. If you have to justify the reasoning for pay, managers will be less likely to engage in this behavior. In addition, providing an open atmosphere encourages those who disagree with performance metrics to challenge them and offers the opportunity to bring about additional change.
Less than half of employees believe they’re fairly compensated
So, how is pay perceived today? According to results from Willis Towers Watson’s 2016 Global Total Management and Rewards, and Global Workforce Studies, only half of employees believe they’re paid fairly and only a little more than three in five know how their pay is determined. Imagine if you posted all salary data, including the salaries of your leadership team, to your internal website. And, you could justify pay when questioned by employees. What would your employees think of such transparency? And would they respond? It could result in increased trust and loyalty, which could in turn, boost attraction and retention. In short, a win-win for everyone.
The results can be telling. According to a Middlebury College study, employees whose salaries were open and who knew how their pay compared to their peers worked harder and increased their overall performance. Is it time to level the playing field and allow employees to know where they stand from a compensation perspective? Doing so could encourage some healthy competition, increase performance and provide great results for the company as a whole.
Suzanne Ray is a compensation/Total Rewards consultant with Willis Towers Watson’s Human Capital Practice in Atlanta where she supports the design of base pay delivery and other compensation/Total Rewards programs. In addition to base pay design, Suzanne has experience in sales compensation, incentive and recognition programs and commission operations.